Q2 2023 PetIQ Inc Earnings Call

Good day and welcome to the Pet IQ, Inc. Second quarter 2023 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your tongue.

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I would now like to turn the conference over to Katie Turner Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us on <unk> second quarter 2023 earnings conference call and webcast for today's prepared remarks, we'll hear from quite questions, Chairman and Chief Executive Officer, and Chief financial.

Officer before we begin please remember that during the course of this call management may make forward looking statements within the meaning of the federal Securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could differ materially from actual events or those described in these forward looking statements. Please refer to the company's annual part on Form 10-K.

And the other reports filed from time to time, when does Securities and Exchange Commission and the company's press release issued today for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today. Please note on today's call management role for a certain non-GAAP financial measures while the company believes these non-GAAP .

Yeah. It's all measures will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.

Please refer to today's release for a reconciliation of non-GAAP financial measures. The most comparable measures prepared in accordance with GAAP. In addition, pet IQ is supposed to be a supplemental presentation on its website for reference and with that I'd like to turn the call over to Corey question Ted.

Thank you Katie and good afternoon, everyone. We appreciate you joining us today to discuss our record second quarter financial results.

I'll begin with an overview of key highlights since the I'll review, our financial results for the quarter and outlook.

Finally V Michael John and I'll be available to answer your questions.

Our team did an excellent job during the second quarter executing our operational and strategic growth initiatives their hard work and dedication across both our products and services segment enabled us to report record net sales and <unk>.

Adjusted EBITDA.

Both of which exceeded our expectations for the second quarter of 2023.

Now as a result of our better than expected Q2 and year to date results. We are pleased to be able to raise our full year 2023 outlook.

Few key highlights from the second quarter include we.

We reported net sales of $314 5 million an increase of approximately 25%.

The net sales result was above our second quarter outlook of 270 million to $280 million.

We had strong broad based growth across our business with a solid increase in gross profit dollars and improved leverage of our SG&A expenses.

Even with the key investments in advertising and promotional spend to support the growth of our business.

This helped us achieve record quarterly adjusted EBITDA of $32 9 million.

Our guidance for the second quarter, adjusted EBITDA of $24 million to $26 million and a 36% increase versus second quarter of 2022.

Our higher earnings and improved working capital helped us achieve second quarter record cash from operations and we reduced the company's net leverage to three six times as of June 30th 2023.

Turning to our product segment in more detail the product segment contributed net sales of $278 $2 million, an increase of 27% compared to the prior year period.

When you look at all sales channels combined year over year consumption growth in the over the counter flea and tick category was the strongest that we've seen in the last 36 months during the second quarter of 2023 at a positive 10, 4%.

In second quarter of this year nearly 50% of the over the counter flea and tick category sales were generated online and importantly, cutting skus portfolio of brands continue to capture a disproportionate amount of this growth and dramatically outperformed the broader category as evidenced by our second quarter share results.

Turning to our product segment more detailed.

As I mentioned, our pet IQ manufactured products outperformed the broader category.

Most critical category to enable our financial resolve just gotta accused manufactured flea and tick business, which saw its best quarter of winning or pet parents since our acquisition of Paragon <unk> animal health in 2019.

When looking at our over the counter flea and tick brands growth in all sales channels for the 12 weeks ended June 17th 2023, our portfolio of OTC flea and tick brands grew a positive 15, 3% versus the market's growth of a positive 10, 4%.

Leading to a gain of a positive 46 basis points of share here.

These gains were driven by both our pet armor, plus and cap star brands.

Our pet supplement segment Sox salaried consumption growth in the second quarter 2023 as our portfolio grew a positive 19.5% as compared to the prior year.

The category also continue to see significant expansion in the quarter gained 16, 1% over the prior year period. This fast growing category has more than doubled over the last four years and has surpassed the OTC flea and tick business is the largest category we compete in within our manufacturing portfolio.

Strong household penetration trends along with expanded need states in the category gives us confidence that the broader category will continue to maintain high double digit growth rates for many years to come and pet IQ is positioned very well to continue to gain share in this important category.

In addition, our dog treat business continued to also outperformed the category.

This growth was led by our dental treat business via the <unk> brand, which grew positive 31% and gained 47 basis points of share within the category.

Another growth driver for us in the quarter was our pet loved treats brand, which expanded by a positive 23%.

The newest member of our portfolio Rockwood, Roxy, which we acquired in January of 2023 also saw double digit growth rates.

The Rockwood Roxy brands grew a positive 13, 8% in the second quarter well ahead of our projections.

We exited several parts of the business in the first half of 2023 that we determined were not a strategic fit for <unk>.

And are pleased to still have recovered these lost sales and achieved better than expected Roes without their sales contribution.

Our core items in the premium pet stain and odor category exceeded our expectations and we are very encouraged to see the brand began to expand into other premium pet categories with success.

This has also contributed to the share gains we're seeing within the branch.

And also the paddock your manufactured products increased 21, 2% ahead of our expectations our.

Our own manufactured products represented 29, 1% of our product segment net sales in Q2 of 2023 compared to 26, 2% in Q1 of 2023.

This building run rate will continue in the back half of the year and will allow our manufactured products to achieve our sales dollar growth for 2023.

However, we will likely be below our expectations of 32% of our product segment sales to come from the pet IQ manufacturer brands in 23 three.

As our distributor product portfolio has significantly recovered from the prior year and is contributing above our modeled forecasts.

That said, we do continue to expect outperformance of our pet IQ manufactured product portfolio.

But this will be against a larger pie of overall revenue than we previously forecasted.

Now focusing on the services segment.

Our servicing segment reported second quarter 2023, net revenue of $36 4 million, an increase of 10, 2% as compared to the prior year period and ahead of our expectations.

We experienced improved cancellation rates and solid operational improvements, which allowed for increases in average revenue per clinic and average Dogger pets served during the second quarter of 2023.

We converted four wellness centers to hygiene standards in the quarter and we will continue to test. This exciting New addition to the services segment.

Moving forward, we will remain prudent with our new location growth for the remainder of 2023.

Importantly, under John Pearson's leadership.

Services segment has experienced a significant improvement in the last year since he has joined.

Most recently our services team executed regional pricing and is tested additional services centered around hygiene with select locations already successfully increasing the number of pet visits as a result of these new services.

During second quarter, we also launched a new convenient virtual tool, allowing pet parents to book appointments easily or walk in and know when they can see of that or about tech.

We've been pleased with the innovation and peso results generated from the services segment in second quarter last year and look forward to the opportunities we have ahead.

Before I turn the call does B I would like to congratulate John Pearson on his promotion to executive Vice President services and manufactured products and newly created role effective August 12.

<unk> 2023.

In his new role John will gain responsibility for pet iqs manufactured product portfolio.

Inclusive of the company's sales and marketing teams, while maintaining his current responsibilities for the services segment.

He will continue to report directly to Michael Smith, President and Chief operating Officer.

On behalf of the board.

And our leadership team, we are thrilled for John to step into this new role as we continue to build upon our strong foundation for growth and profitability and deliver a smarter way for pet parents to help their pets live their best lives.

We remain optimistic about our opportunities for growth in the second half of 2023.

And our data across all sales channels in the product segment for Q3 to date continues to show that pet IQ is performing well across categories.

In closing, we appreciate the hard work and dedication of our employees in our manufacturing and distribution facilities as well as our corporate office.

Their commitment to our mission and core values and helping us to achieve these operational and financial results with that overview I would like to now turn the call over to Zee.

Thank you cord, we are very pleased with our second quarter results from the ability to raise up 2023 annual guidance based on our strong year to date financial results.

Today, I will discuss our quarterly financials in more detail and our outlook for Q3 and the full year 2023.

We reported record Q2, net sales of $314 $5 million, an increase of approximately 25% compared to Q2 of last year driven by an increase in sales from both the products and segments segments.

As well as the addition of Rockwood Roxie.

Cort mentioned, we had strong broad based growth across all sales channels and product categories.

Second quarter 2023, gross profit dollars increased 19, 2% to $73 $9 million.

Just within the mix of products segment sales to more health and wellness products that carry a lower margin and timing of cost increases contributed to the 23, 5% gross margin in the second quarter of 2023, representing a 110 basis point decline as compared to Q2 of last year.

SG&A expenses for the second quarter of 2023, or $55 $2 million compared to $56 million in the second quarter of the prior year.

SG&A as a percentage of net sales decreased 250 basis points to 17, 5%.

Adjusted SG&A was $51 $5 million for Q2 of 2023 compared to $46 $1 million in Q2 of last year.

As a percentage of net sales adjusted SG&A was 16, 4% a decrease of 190 basis points compared to the prior year period.

The decrease was mainly due to continued leverage of costs and increased business expense efficiencies relative to the growth in sales for the quarter.

It is worth noting that we leveraged SG&A in the quarter, while also growing our A&P investments to support the long term health of our manufactured brands portfolios.

From a profit perspective, we reported Q2 net income of $9 $6 million or EPS of <unk> 32.

Adjusted net income for the second quarter of 2023 was $13 $4 million and adjusted EPS was <unk> 46 cents, an increase of 39, 4% compared with Q2 of last year.

Q2, EBITDA was $29 $2 million, an increase of 49, 2% compared to $19 $6 million in the prior year period.

We reported record second quarter, adjusted EBITDA of $32 $9 million, an increase of 36, 3% compared to $24 $1 million in Q2 last year, representing an adjusted EBITDA margin of 10, 4% an increase of 80 basis points compared to Q2 of 2022.

Turning to our balance sheet and liquidity for the quarter ended June 30th 2023, the company had total cash and cash equivalents of $78 $4 million.

The company generated $57 $7 million of cash from operations for the second quarter of 2023.

This was driven by increased earnings as well as $34 $2 million from working capital benefits as a result of the seasonal nature of the business.

<unk> been pleased with the company's cash generation in the first half of this year and now believe we will be towards the top end of our annual free cash flow guidance range of $30 million to $40 million.

The company's total debt, which is comprised of its term loan a b L convertible debt and capital leases was $449 $6 million as of June 32023.

In addition to our cash on hand, the Companys revolving credit limit is undrawn and has $125 million of availability.

Total liquidity, which we define as cash on hand, plus debt availability was $203 $4 million as of June 32023.

While we have no intention of making additional borrowings we would note that our liquidity is ample and our credit facilities are flexible.

Our net leverage as calculated under terms of our credit facilities at the end of the second quarter of 2023 was three six times versus 5.0 times in the prior year period, driven by higher earnings and improved working capital.

We are pleased with our ability to reduce our leverage and continue to believe net leverage at the end of 2023 will be lower than at the end of 2022.

Our team remains confident that the consistent growth and contribution from the product segment as well as the ongoing improvement in the services segment positions the company well to drive future free cash flow and build cash in addition to opportunistically paying down our debt.

Now turning to our guidance.

For the year ended December 31, 2023, we are raising the guidance.

I will reference the midpoint of the guidance ranges when discussing our percentage increases in net sales and adjusted EBITDA as compared to the prior year period, when compared to Q3 of 2022.

This is consistent with what is presented in today's press release and earnings presentation.

We now expect net sales of 1 billion $10 billion to $1 billion 50, an increase of approximately 12% as compared to 2022.

For adjusted EBITDA, we increased the range to $93 million to $97 million, representing an increase of approximately 22% as compared to 2022.

For the third quarter of 2023, we expect net sales of $220 million to $240 million, an increase of approximately 10% as compared to the prior year period.

And we expect adjusted EBITDA of $18 million to $20 million, an increase of approximately 17% as compared to the prior year.

Based on the success of our marketing initiatives year to date, our raised outlook for the remainder of the year now includes an incremental $2 million of A&P investments to benefit brand awareness in consumption in 2024 and beyond keep.

Keep in mind that consistent with prior year periods. The fourth quarter of 2023 will be the lowest contribution net sales and adjusted EBITDA quarter. In addition, it is important to note that in Q4 of this year, we expect to make certain strategic growth.

Investments in SG&A to support the continued growth and development of our brands and position us well for the start of next year.

So based on these items you will see an implied lower growth rate in Q4 of this year versus the year over year growth expectations. We have communicated today for the third quarter of 2023.

In closing we reported strong results for the second quarter and first six months of 2023.

And our team remains optimistic about our opportunities for growth in 2023.

Pet IQ our team will continue to execute on our strategic initiatives to deliver value for all of our stakeholders as we execute on our mission of smarter convenient and affordable pet health and wellness with pet parents.

That concludes my financial review cord, Michael Jon and I are now available for your questions operator.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys.

At any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

The first question comes from refresh Perique with Oppenheimer. Please go ahead.

Good afternoon, and thanks for taking my question and congrats on a very strong quarter. So I just wanted to start out with your Q2 performance. So obviously, a very strong top line be it looks like you'd be at the high end by more than $30 million. Just curious if you can rank the sources of upside versus you know I guess I guess your guidance range.

I think a refresh this quarter thanks for the question.

Probably better Michael answers it because he can talk through.

Which categories outperformed we just we saw overall consumption trends.

Accelerated in the second quarter from first quarter, which was also a very strong quarter, but Mike why don't you comment on the the sources of the beat.

Yes, I would say it was a very broad and you look at kind of our key categories. There's not necessarily one that massively outperformed to lead the pack per se. They are carried a little bit of weight, obviously the over performance in the flea and tick category helps not only on.

The top line, but also on the bottom line.

We had a significant beat versus our expectations not only for the category, but also the amount of share that we were able to pick up in the second quarter.

We also had really strong results out of our supplements business, our dental treats business, we saw better than expected results from our stain and odor business under the acquisition of Rockwell ROTC.

And then our distributed portfolio over performed expectations as well so really each of the key segments of business had meaningful beat versus our expectations.

Great and then looking at Q3 guidance. It does imply a moderation on the sales line versus Q2, and I know, there's seasonality and comparisons come into play, but just curious if it does maybe more conservatism for Q3 or if there's something else at play.

No I think in general I mean prepared we always know that Q3 and Q4, we start to see less contribution from our seasonal businesses.

And so we've definitely been conservative to kind of anticipate what's happening if we continue to see consumption running the way. It is then we anticipate that will also have a stronger Q3 than what we've guided to.

But it is responsible based on what we know from historical performance on just the overall seasonality of the business and so we've taken into account. If you take Q3 Q4 same commentary we know.

Now in Q4, we had less contribution from a categories that play.

<unk> taken some of the others that are over performing right now and so in general we've been conservative.

But we're also again just.

Great place Consumptions. Good pet parents have decided to take care of their pets are spending in the right areas. We've seen a recovery in the super premium as well and so it just in general we're just making sure that we are not overreaching and the seasonal contribution as it starts to kind of taper off we also have to take in account what happens with weather as Q3 and.

Q4, we don't know when the season starts to drop off and so that's also S. P and concerned about what could potentially happen. There. So if everything goes right, we can see and outperform but right now I think it's right to do based on what we've done with our guidance.

Great and then my last question just on gross margins. So the mix shift did weigh on your gross margin rate during the quarter. Just curious how you think about the gross margin puts and takes for the back half here and especially mix.

Yeah. This is the main thing that drove our gross margin down in the quarter was the fact that our manufactured cat.

Categories performed exceptionally but a lot of the manufacturing categories that grew faster than go faster with a health and wellness categories. Those categories carry a slightly lower but very healthy margin and so that drove the manufacturer.

The margin percentage down in the quarter. We continue to expect it's also worth pointing out the Q2 is a bit of an anomaly.

The rest of the year, we do expect to be up on a year on year basis for margins close to 100 bps, probably 75 to 100 bps. So I think we have pretty good line of sight to margins. The only way the margin percentage will be down is if some of those.

Other categories outperform but that would only happen problems with upside to the total margin dollars.

Great. Thank you congrats again.

Thanks for question.

The next question comes from Jon Andersen with William Blair. Please go ahead.

Oh, hi, Thank you for the questions.

Wanted to ask you about the services business.

Or do you mentioned before.

Conversions of wellness centers to hygiene locations can you talk a little bit more about you know what's going on there what your plans are for the future what kind of performance you're seeing as you shift towards kind of the hygiene approach and how that might play out over the next well.

12 to 24 months.

Yeah. Thanks, Jon I think in general we've talked about a lot. Obviously, we were just at your conference.

The Hygiene addition is significant for US we're testing area, we're measuring it we're definitely not declaring victory yet, but we're very encouraged by what it adds to the locations because its a list.

List of services that drive great revenue and margin profile without getting the bad labor, we're able to really focus on what we're great at which is our ability to move that's there when we need the vet presence.

We're up to six locations, we're definitely going through an optimization with those we're testing we're growing the subscription base there we're learning.

At the end of the day, it's still early in our decision to expand that significantly but all indications are it is a great opportunity for us. We think it's the right thing for the business, we need to add more revenue and margin opportunities to the box and so we're excited about it but again I think in general we've always said, we're going to have enough of a base to really test measure and once we declared victory yet.

No, but again I think in general we think it's the right thing for what's going on in the labor market with the vast when it's the right thing for kind of Q.

And we're excited that we're kind of at a place where we have a broader base group of stores across a bunch of different demographics to start testing and measuring and growing across that thing so well.

We'll get to giving you updates every quarter on how we're doing when we declare victory. We'll let you know, but we're still early in the process, but again very optimistic and encouraged by what we're seeing.

And a follow up on that.

Are you doing the hygiene standards with with one particular customer is there something that our customers requested is it.

So it's not hard to figure out that.

I mean, it works, it's really a great contribution.

And right now no. We we've kind of put all the research and all of the children say anywhere.

Testing measuring and working towards how that would potentially contribute in and it's also part of all the digital health care thing, where we're committed to which is these hygiene services helped to pet helps her health care helps things work and so we're just continuing to kind of head down the path, but again, it's early and we're not ready to declare victory yet, but we're definitely.

Encouraged.

Okay. That's helpful. Just one more.

Two parter on costs.

So you mentioned a part of the a lower gross margin rate in the quarter was just a mix shift I think that was the bigger part, but it also mentioned the timing of cost increases just was hoping.

To get a little bit more explanation around that and whether those are transitory or theres something else and then.

On the the additional A&P investment.

And an additional investment in the fourth quarter, what what how will that be directed to kind of I guess, what what part of the business do you see the opportunity to invest more behind us as you look to you know longer term growth. Thanks.

Yeah, Let me, let me take that so in terms of.

The cost there is no impact this year last year with a pretty dynamic pricing environment, where costs were going up there were times, where we had.

Things we've paid for.

We're at a lower cost before the price increase, but we sold them out.

The price increase we obviously tried to buy commodities and things like that in that way as well. So there is no impact this year, because there was a little bit of benefit last year in terms of the marketing Michael can provide the details, but it's invested in the manufacturing part of our business.

I don't know if Michael has any more detail to add to that yes, I would just say that really it's not against one single brand or initiative, it's really.

Our reinvestment into more awareness tactics to build the long term health of our portfolio. We obviously invest in variety of different tactics for a variety of different outcomes, but the incremental investment that we're putting into the business in the back half we do hope to have some near term benefit but is designed to be more of a long term benefit to the brands.

Over the next 12 to 24 months.

Great. Thanks, a lot and congrats on a nice nice quarter.

Thanks, John .

Again, if you have a question. Please press Star then one.

The next question comes from Bill Chapell with <unk> Securities. Please go ahead.

Yes.

Thanks, Good afternoon.

Yes.

Hey, just a follow up on on just the overall flea and tick season.

It seemed from the other seasonal stocks we cover.

As a slower start in terms of cooler wetter.

Start to the spring and then it gets heated up but don't know how that compares to what you were expecting how it compares versus year over year. If some of this is a benefit of a stronger than expected season, or just really had outperformance from the company.

Michael you want go first of all kind of cleanup after.

Yeah on flea and tick look it's a category that is largely.

We're opening with the with the economy, what their expectations of what was going to happen and they've returned to spending on their pets and so that part's over performed our categories are definitely over performed we did some things marketing and positioning that definitely have work to our benefit and it's why Michael and his team has been able to take more share than what we expected so in general.

It's a good carrier for weather, but it's hard to measure with all the other noise that happened with the consumer and so.

We're like we've always said we're radio business every day, we're positioned to win and this is a year that it's definitely kind of all come together better than we expected.

Got it and I guess on that same vein.

How much do you think this is.

Instead of one or two good quarters, I mean, a kind of a longer term post pandemic dividend of a higher pet population and more consumers are.

Spending.

And their pets as new pets, they've gotten over the past three or four years.

I definitely think that for the first time, we have kind of a normalized year, where we're not trying to deal with anomalies in the market and who's doing what and why and how and so that's been nice to have that kind of kind of a level turns and just consumption and basic stop but look whether its been good this year for our categories the consumer's risk.

Bonding well.

We're definitely at a place as a company, where we know how to reach out communicate educate and convert people to do things. We are making investments to continue that because we are able to measure that ROI and understand how it pays dividends and I think in general we're positioned extremely well as a company, whether it's clean tech or help them.

[noise] wellness or dental or what the stuff we distribute it it's all working well because.

We're finally in a place where we're not trying to take apologize for something that's going on outside of the company's control and so we're in control we have the levers we're pulling them, they're working and I think you'll see.

A great back half of the year and a great 2024.

Got it and one follow up yeah sure.

I was just going to add a touch more onto that.

Don't want us to not get credit for some of the things that our team has done.

Whether the huge factor, but look there's some real changes in consumer behavior and retailer behavior around this category that is worth, noting one animal health and in OTC environment with our retail partners continues to be a higher point.

Point of emphasis as they seek to win over customers in a bolder way animal health and pet continue to rise to be something that is getting more attention and focus and support which is a contributor to the performance we're seeing.

Also seeing some shifts in consumer behavior, where last year.

We started seeing consumers not preventively treat their pets they were waiting to see an issue on the test and then they would treat we're seeing a reversion back to the preventative mindset and greater compliance of dosing every month and a reversion back to the bigger pack sizes that tell us that.

Appliances being driven.

As the product is in the home it gets utilized when the caller smaller pack sizes purchased you can miss a months of dosing and there's a lot of good organic tailwind and seeing those consumer trends come back to support the category of longer term that do look now it would be sticking in over a two year three year period, we have seen that Q2 and Q3 of 2022.

Anomaly and it looks like we've course corrected back to the the way the consumer traditionally engages in this category.

Thanks, so much for the color appreciate it.

The next question comes from John Lawrence with Benchmark. Please go ahead. Good afternoon, guys congrats on the quarter.

Yes, John Congrats on your promotion could you just give a little insight as to the last year and talk about.

When you came into the role in the services side.

Talk about some of the heavy lifting and in some of the things that.

You put in place are on that services business to generate these kind of results.

Great. Thanks, John .

So yes.

And the team just over a year ago, you know for me it really goes back to the customer and what is our customer value and want most from us.

When we look at our business model, it's all about convenient access to affordable care on the services side, and we assessed where we were putting dollars to improve our business model. It was frankly towards other customer value propositions that.

Our customer hasn't and frankly, we haven't proven are leaning towards us for and so it was really an assessment of.

Where do we need to put resources to focus on the things that matter most of our customer and so we focused on improving our cancellations getting our staffing right.

Finding the appropriate bets in markets, where we generate the best return and then as we've been on this journey with the Wellness Center re imagination, it's really assessing what matters to that customer as well and is it similar to the community clinic model are different.

And we're excited about now the capabilities of the team has enabled through tech enablement and several other factors to be able to have more levers to deliver the P&L and deliver what the customer cares about which as I mentioned is affordable accessible cure.

Great. Thanks.

Cord would you talk about the product portfolio and now you've got some changes coming in 'twenty four speak to that and obviously the the offerings will get broader and remind us what that looks like because it's.

You continue to grow that category.

Well I think in general we have.

Both our distributor portfolio has some significant launches as they've made it through both the FDA and the EPA that we think will add.

<unk> value to the portfolio, we've been working against a very robust R&D portfolio that we have launches that will happen in 'twenty four 'twenty five.

That we're excited about we're very very optimistic about our continued ability to grow deliver value and make things work and then I think as you've seen we're.

We're hitting our stride as it relates to our current portfolio that armor caps are men Ts that IQ all of those brands are exceeding our expectations from a growth standpoint.

I think you'll find as you track the performance in our manufactured brands with the margin profile of it.

We have a great base with great growth and now one of the best times, we're going into with our R&D portfolio starting to come through all the regulatory process to be able to deliver so.

We're optimistic about the future.

Never a straight line up to the right, but it's always going to be up to the right with pet IQ. So we will continue to work hard and deliver those type of results in.

Does the corridor. We're excited about is we've been able to.

Leverage all aspects of the business services manufactured distributed everything has done a really good job as we've seen pet parents get excited about getting back is just taking care of the pets and I think it's indicative of where people prioritize where they are going to take care of the things in our personal lives. So we're we've got a great quarter great year to.

David Obviously, we read guys raised guidance significantly.

For the rest of the year and I think we're also still being conservative for the back half so.

Yeah, it's been a great quarter John .

Great. Thanks, Good luck.

This concludes our question and answer session I would like to turn the conference back over to cord Christensen for any closing remarks.

Just like to thank every that's been on the call with us through the last few years, it's been great to finally be at a place where we're able to operate in an environment, where the consumer the market theres not a lot of different anomalies, the retailers aren't having inventory issues.

You can see how the company can perform when we can have a stabilized market. So it's been a great year, our employees have done an amazing job across all aspects of the business.

We appreciate everyone that's.

With us and talk with us and been here for US is that we continue to grow as we've continued through thick and thin to deliver but great results, but 2023 has been a great year for the company a great year for pet parents and definitely a great year for <unk> to continue to offer value and convenience for all pet parents across the country. So thanks for being with us and we look forward to spending.

I'm with you.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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